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Monetary Policy and the Stock Market: Some International evidence

Author

Listed:
  • Christos Ioannidis
  • Alexandros Kontonikas

Abstract

This paper investigates the impact of monetary policy on stock returns in thirteen OECD countries over the period 1972-2002. Our results indicate that monetary policy shifts significantly affect stock returns, thereby supporting the notion of monetary policy transmission via the stock market. Our contribution with respect to previous work is threefold. First, we show that our findings are robust to various alternative measures of stock returns. Second, our inferences are adjusted for the non-normality exhibited by the stock returns data. Finally, we take into account the increasing co-movement among international stock markets. The sensitivity analysis indicates that the results remain largely unchanged.

Suggested Citation

  • Christos Ioannidis & Alexandros Kontonikas, 2006. "Monetary Policy and the Stock Market: Some International evidence," Working Papers 2006_12, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2006_12
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    File URL: http://www.gla.ac.uk/media/media_219105_en.pdf
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    References listed on IDEAS

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    1. Cecchetti, Stephen G. & Kashyap, Anil K, 1996. "International cycles," European Economic Review, Elsevier, vol. 40(2), pages 331-360, February.
    2. Edward Nelson, 2000. "UK monetary policy 1972-97: a guide using Taylor rules," Bank of England Staff Working Paper series 120, Bank of England.
    3. Cassola, Nuno & Morana, Claudio, 2004. "Monetary policy and the stock market in the euro area," Journal of Policy Modeling, Elsevier, vol. 26(3), pages 387-399, April.
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    Citations

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    Cited by:

    1. Martin Širůček, 2013. "Impact of money supply on stock bubbles," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 61(7), pages 2835-2842.
    2. repec:ere:journl:v:xxxix:y:2020:i:2:p:187-216 is not listed on IDEAS
    3. Opeyemi Aromolaran & Nicholas Ngepah, 2024. "Threshold Analysis of the Stock Market Capitalization and Monetary Policy in South Africa: The Role of Investment in Artificial Intelligence," International Journal of Economics and Financial Issues, International Journal of Economics and Financial Issues, vol. 14(5), pages 18-25, September.
    4. repec:pra:mprapa:38783 is not listed on IDEAS
    5. Abdul-Nasir T. Yola, 2019. "On the Reaction of Stock Market to Monetary Policy Innovations: New Evidence from Nigeria," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(2), pages 94-98, June.
    6. Kerry Liu, 2023. "America's decoupling from China: A perspective from stock markets," Economic Affairs, Wiley Blackwell, vol. 43(1), pages 32-52, February.
    7. Moayedi, Vafa & Aminfard, Matin, 2011. "The Impact of Policy Shocks on Financial Structure: Empirical Results from Japan," MPRA Paper 39185, University Library of Munich, Germany.
    8. Rosalinda Arriaga Navarrete & Miriam Sosa Castro & Abigail Rodríguez Nava, 2020. "Impactos monetarios sobre la rentabilidad del mercado accionario en México: Un análisis de cambio de régimen markoviano," Ensayos Revista de Economía, Universidad Autónoma de Nuevo León, vol. 39(2), pages 187-216, November.
    9. Abdul Qayyum & Saba Anwa, 2010. "Impact of monetary policy on the volatility of stock market in pakistan," Economics Bulletin, AccessEcon, vol. 30(4), pages 1-28.
    10. Pacicco, Fausto & Vena, Luigi & Venegoni, Andrea, 2019. "Market reactions to ECB policy innovations: A cross-country analysis," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 126-137.
    11. Maran, Raluca, 2022. "Reaction of the Philippine stock market to domestic monetary policy surprises: an event study approach," MPRA Paper 114855, University Library of Munich, Germany.
    12. Fausto Pacicco & Luigi Vena & Andrea Venegoni, 2017. "Market Reactions to ECB Policy Innovations: A Cross-Country Analysis," LIUC Papers in Economics wp4, Cattaneo University (LIUC).
    13. Bui, Mai & Pham, Huy & Nguyen Thanh, Binh & Tiwari, Aviral Kumar, 2024. "Revisiting the determinants of cryptocurrency excess return: Does scarcity matter?," International Review of Economics & Finance, Elsevier, vol. 96(PC).
    14. Debabrata Mukhopadhyay & Nityananda Sarkar, 2019. "Demonetization and Its Effects on BSE SENSEX and Some Sectoral Indices: An Exploratory Econometric Analysis," International Econometric Review (IER), Economic Research Association, vol. 11(2), pages 38-57, September.
    15. Mortaza OJAGHLOU, 2020. "Dynamic Effects of Macroeconomic Fundamentals on Stock Market Movements: Evidence from BIST100," Bulletin of Economic Theory and Analysis, BETA Journals, vol. 5(2), pages 17-36.
    16. Širůček, Martin, 2015. "Kauzalní vztah peněžní nabídky a amerického akciového trhu [Money supply and US stock market causality]," MPRA Paper 66357, University Library of Munich, Germany, revised 30 Aug 2015.

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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